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Wednesday, April 10, 2013

We Are All F***ed!: Winner Takes All - The Super-Priority Status Of Derivatives!

I have been following the steadily worsening world wide financial situation for some time now, and have put up dozens of reports at this blog informing everyone to be prepared for a true hurricane of financial collapse that is surely just around the corner (possibly as soon as this summer!). It is startling to realize that most people are totally unaware, or absolutely do not care, that their entire world is about to change, and they could wake up one day, destitute and wondering how the hell did this mess ever happen!

We hear constantly about the crushing Usury debt loads that are being imposed upon nations by the criminal Jewish bankers that have created this mess in the first place... But the 800lb gorilla that is sitting in the room, and that nobody wants to talk about is the massive 1.5 QUADRILLION (recent estimate) dollar world wide Derivatives time bomb that has been rapidly growing over the last few years.... If this Derivatives bubble was to ever explode, we could see total world wide collapse of all financial systems almost instantly.....

I came across a very important article through Poor Richard's Blog, at www.poorrichards-blog.blogspot.com, that is a must read by everyone... It comes from author Ellen Brown, and is entitled: "Winner Takes All: The Super-Priority Status Of Derivatives", and paints a not too pretty picture of the present Derivatives mess that could easily explode this year and totally destroy our entire financial system in a heartbeat.... Here is that important article, and I do have my own thoughts and comments to follow:

Cyprus-style confiscation of depositor funds has been called the “new
normal.” Bail-in policies are appearing in multiple countries directing
failing TBTF banks to convert the funds of “unsecured creditors” into
capital, and those creditors, it turns out, include ordinary depositors.
Even “secured” creditors, including state and local governments, may be
at risk. Derivatives have “super-priority” status in bankruptcy, and
Dodd-Frank precludes further taxpayer bailouts. In a big derivatives
bust, there may be no collateral left for the creditors who are next in
line.Shock waves went around the world when the IMF, the EU, and the ECB
not only approved but mandated the confiscation of depositor funds to
“bail in” two bankrupt banks in Cyprus. A “bail-in” is a quantum leap
beyond a bailout. When governments are no longer willing to use taxpayer
money to bail out banks that have gambled away their capital, the banks
are now being instructed to “recapitalize” themselves by confiscating
the funds of their creditors, turning debt into equity, or stock, and
the “creditors” include the depositors who put their money in the bank
thinking it was a secure place to store their savings.The Cyprus bail-in was not a one-off emergency measure but was
consistent with similar policies already in the works for the U.S.,
U.K., EU, Canada, New Zealand, and Australia, as detailed in my earlier
articles here and here. “Too big to fail” now trumps all. Rather than
banks being put into bankruptcy to salvage the deposits of their
customers, the customers will be put into bankruptcy to save the banks.Why Derivatives Threaten Your Bank Account

The big risk
behind all this is the massive $230 trillion derivatives boondoggle
managed by U.S. banks. Derivatives are sold as a kind of insurance for
managing profits and risk, but as Satyajit Das points out in Extreme
Money, they actually increase risk to the system as a whole.In the
U.S. after the Glass-Steagall Act was implemented in 1933, a bank could
not gamble with depositor funds for its own account, but in 1999 that
barrier was removed. Recent congressional investigations have revealed
that in the biggest derivative banks, JPMorgan (JPM) and Bank of America
(BAC), massive commingling has occurred between their depository arms
and their unregulated and highly vulnerable derivatives arms. Under both
the Dodd-Frank Act and the 2005 Bankruptcy Act, derivative claims have
super-priority over all other claims, secured and unsecured, insured and
uninsured. In a major derivatives fiasco, derivative claimants could
well grab all the collateral, leaving other claimants, public and
private, holding the bag.

The tab for the 2008 bailout was
$700 billion in taxpayer funds, and that was just to start. Another $700
billion disaster could easily wipe out all the money in the FDIC
insurance fund, which has only about $25 billion in it. Both JPMorgan
and Bank of America have over $1 trillion in deposits, and total
deposits covered by FDIC insurance are about $9 trillion. According to
an article on Bloomberg in November 2011, Bank of America’s holding
company then had almost $75 trillion in derivatives, and 71% were held
in its depository arm, while JPMorgan had $79 trillion in derivatives,
and 99% were in its depository arm. Those whole mega-sums are not
actually at risk, but the cash calculated to be at risk from derivatives
from all sources is at least $12 trillion, and JPM is the biggest
player with 30% of the market.

It used to be that the government
would backstop the FDIC if it ran out of money. But section 716 of the
Dodd Frank Act now precludes the payment of further taxpayer funds to
bail out a bank from a bad derivatives gamble. As summarized in a letter
from Americans for Financial Reform quoted by Yves Smith:

Section 716 bans taxpayer bailouts of a broad range of derivatives
dealing and speculative derivatives activities. Section 716 does not in
any way limit the swaps activities which banks or other financial
institutions may engage in. It simply prohibits public support for such
activities.

There will be no more $700 billion taxpayer bailouts.
So where will the banks get the money in the next crisis? It seems the
plan has just been revealed in the new bail-in policies.All Depositors, Secured and Unsecured, May Be at Risk

The
bail-in policy for the U.S. and U.K. is set forth in a document put out
jointly by the Federal Deposit Insurance Corporation (FDIC) and the
Bank of England (BOE) in December 2012, titled “Resolving Globally
Active, Systemically Important, Financial Institutions.” In an April 4
article in Financial Sense, John Butler points out that the directive
does not explicitly refer to “depositors.” It refers only to “unsecured
creditors.” But the effective meaning of the term, says Butler, is
belied by the fact that the FDIC has been put on the job. The FDIC has
direct responsibility only for depositors, not for the bondholders who
are wholesale non-depositor sources of bank credit. Butler comments:Do
you see the sleight-of-hand at work here? Under the guise of protecting
taxpayers, depositors of failing institutions are to be arbitrarily,
de-facto subordinated to interbank claims, when in fact they are legally
senior to those claims!

…[C]onsider the brutal, unjust irony
of the entire proposal. Remember, its stated purpose is to solve the
problem revealed in 2008, namely the existence of insolvent TBTF
institutions that were ‘highly leveraged and complex, with numerous and
dispersed financial operations, extensive off-balance-sheet activities,
and opaque financial statements.’ Yet what is being proposed is a
framework sacrificing depositors in order to maintain precisely this
complex, opaque, leverage-laden financial edifice!

If you believe
that what has happened recently in Cyprus is unlikely to happen
elsewhere, think again. Economic policy officials in the U.S., U.K. and
other countries are preparing for it. Remember, someone has to pay. Will
it be you? If you are a depositor, the answer is yes.

The
FDIC was set up to ensure the safety of deposits. Now, it seems, its
function will be the confiscation of deposits to save Wall Street. In
the only mention of “depositors” in the FDIC-BOE directive as it
pertains to U.S. policy, paragraph 47 says that “the authorities
recognize the need for effective communication to depositors, making it
clear that their deposits will be protected.” But protected with what?
As with MF Global, the pot will already have been gambled away. From
whom will the bank get it back? Not the derivatives claimants, who are
first in line to be paid; not the taxpayers, since Congress has sealed
the vault; and not the FDIC insurance fund, which has a paltry $25
billion in it. As long as the derivatives counterparties have
super-priority status, the claims of all other parties are in jeopardy.

That
could mean not just the “unsecured creditors” but the “secured
creditors,” including state and local governments. Local governments
keep a significant portion of their revenues in Wall Street banks
because smaller local banks lack the capacity to handle their complex
business. In the U.S., banks taking deposits of public funds are
required to pledge collateral against any funds exceeding the deposit
insurance limit of $250,000. But derivative claims are also secured with
collateral, and they have super-priority over all other claimants,
including other secured creditors. The vault may be empty by the time
local government officials get to the teller’s window. Main Street will
again have been plundered by Wall Street.Super-Priority Status for Derivatives Increases Rather Than Decreases Risk

Harvard Law Professor Mark Row maintains that the super-priority status of derivatives needs to be repealed. He writes:

…[D]erivatives counterparties … unlike most other secured creditors,
can seize and immediately liquidate collateral, readily net out gains
and losses in their dealings with the bankrupt, terminate their
contracts with the bankrupt, and keep both preferential
eve-of-bankruptcy payments and fraudulent conveyances they obtained from
the debtor, all in ways that favor them over the bankrupt’s other
creditors. …[W]hen we subsidize derivatives and similar financial
activity via bankruptcy benefits unavailable to other creditors, we get
more of the activity than we otherwise would. Repeal would induce these
burgeoning financial markets to better recognize the risks of
counterparty financial failure, which in turn should dampen the
possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style
financial meltdown, thereby helping to maintain systemic financial
stability.

In The New Financial Deal: Understanding the
Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He
calls the Dodd-Frank policy approach “corporatism” — a partnership
between government and corporations. Congress has made no attempt in the
legislation to reduce the size of the big banks or to undermine the
implicit subsidy provided by the knowledge that they will be bailed out
in the event of trouble.

Undergirding this approach is what Skeel
calls “the Lehman myth,” which blames the 2008 banking collapse on the
decision to allow Lehman Brothers to fail. Skeel counters that the
Lehman bankruptcy was actually orderly, and the derivatives were unwound
relatively quickly. Rather than preventing the Lehman collapse, the
bankruptcy exemption for derivatives may have helped precipitate it.
When the bank appeared to be on shaky ground, the derivatives players
all rushed to put in their claims, in a run on the collateral before it
ran out. Skeel says the problem could be resolved by eliminating the
derivatives exemption from the stay of proceedings that a bankruptcy
court applies to other contracts to prevent this sort of run.Putting the Brakes on the Wall Street End Game

Besides eliminating the super-priority of derivatives, here are some other ways to block the Wall Street asset grab:

(1) Restore the Glass-Steagall Act separating depository banking from investment banking. Support Marcy Kaptur’s H.R. 129.(2) Break up the giant derivatives banks. Support Bernie Sanders’ “too big to jail” legislation.(3)
Alternatively, nationalize the TBTFs, as advised in the New York Times
by Gar Alperovitz. If taxpayer bailouts to save the TBTFs are
unacceptable, depositor bailouts are even more unacceptable.(4) Make
derivatives illegal, as they were between 1936 and 1982 under the
Commodities Exchange Act. They can be unwound by simply netting them
out, declaring them null and void. As noted by Paul Craig Roberts, “the
only major effect of closing out or netting all the swaps (mostly
over-the-counter contracts between counter-parties) would be to take
$230 trillion of leveraged risk out of the financial system.”(5)
Support the Harkin-Whitehouse bill to impose a financial transactions
tax on Wall Street trading. Among other uses, a tax on all trades might
supplement the FDIC insurance fund to cover another derivatives
disaster.(6) Establish postal savings banks as government-guaranteed
depositories for individual savings. Many countries have public savings
banks, which became particularly popular after savings in private banks
were wiped out in the banking crisis of the late 1990s.(7)
Establish publicly owned banks to be depositories of public monies,
following the lead of North Dakota, the only state to completely escape
the 2008 banking crisis. North Dakota does not keep its revenues in Wall
Street banks but deposits them in the state-owned Bank of North Dakota
by law. The bank has a mandate to serve the public, and it does not
gamble in derivatives.A motivated state legislature could set up a
publicly owned bank very quickly. Having its own bank would allow the
state to protect both its own revenues and those of its citizens while
generating the credit needed to support local business and restore
prosperity to Main Street.This article is republished fromhttp://seekingalpha.com/article/1330491-winner-takes-all-the-super-priority-status-of-derivatives

NTS Notes: I honestly wanted to come right out and use the word "fucked" in the title of this important article, but decided to keep it as clean as possible... I think everyone that has read this article hopefully gets the hint....

The facts here speak for themselves... The United States alone with the repeal of the Glass_Steagall act in 1999 that suppressed and placed controls on the Derivatives market, turned Wall Street basically into a Casino, where anyone could trade and place hedges in Derivatives, thus creating the ticking time bomb that we see today...

Yes, there is clear evidence that the 2008 financial crisis in America was created by these same criminal Jewish bank fraud artists that basically blackmailed the US Government into bailing out the criminal banks, or they threatened to have hundreds of Trillions of dollars of Derivatives "exposed". Such exposure would have easily caused financial collapse in America itself! I can guarantee that these criminals are presently holding this Derivative gun to the US government's head to make sure they continue to comply with their evil demands....

The fact that these same criminal banksters that forced bail in provisions in the US and the UK in December 2012 have now repeated this same criminality in Canada as well...The passage of the recent Canadian federal budget calls for "bail in" of failed banks of criminal Canadian banks by using Canadian bank deposits to prop up these fraud banks should they ever "fail".....It does sadden me as a Canadian citizen that most Canadians are still unaware of this criminal provision put in by the criminal Harper regime in Ottawa!

It is truly time that everyone gets up to speed on the truth about this Derivatives time bomb and be made aware of its serious implications..... Take this information, put it up at your own sites, and get everyone to understand the true nature of the mess we are in today.... Time is indeed running short....

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About Myself

Canadian male, age 56..(Hard to believe I am that old..)
Sickened by the lies of history, and how our education system has ruined and failed our childrens' minds, I decided it was time to take a stand and put up real articles of truthful information.
Willing to fight to see truth come out, and to have the true criminals on our planet exposed for their crimes against humanity.
I am in this for the truth and where ever the truth leads me!
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